Analysis: Smart logic: Samsung chips away at Intel lead

June 21, 2012|Miyoung Kim | Reuters

SEOUL (Reuters) - Samsung Electronics, already a world leader in TVs and smartphones, is taking the fight to Intel Corp for the No.1 slot in semiconductors, betting on strong growth in so-called logic chips that are the brains inside today's fast-selling smart mobile devices.

Intel dominates the market for computer processors (CPUs) - its Intel Inside sticker is on around 80 percent of the world's PCs - but future growth is in mobile application processors.

Demand for these is seen rising around 40 percent annually through 2014, according to Nomura research, while growth in PC processors will be in single digits. By 2015, the global market for application processors (AP) will have jumped fourfold to $33 billion, while the CPU market will shrink by more than a tenth to $34 billion, according to NH Investment & Securities.

That's good news for leading AP makers such as Samsung, Qualcomm, Texas Instruments and mobile chip designer ARM Holdings.

Intel has yet to set a marker in the mobile chip market.

Samsung, which leads the market in memory chips that are used in computers, is converting some memory chip production lines to logic chips and will invest close to $2 billion in a new logic chip plant in South Korea, in a clear bet that smartphones and tablets will be the real growth driver for a $311 billion global semiconductor industry that is being shaken up by the rapid advances in technology and consumer gadgetry.

"The overall competition landscape will change as the boundary between CPU and AP blurs, with Intel trying mobile chips, and the performance of ARM-based APs improving to the level of CPU ... That indicates Samsung's ultimate target could be Intel and Qualcomm," said Greg Nho at HMC Investment & Securities.

Francis Sideco, analyst at research firm IHS iSuppli, predicted Samsung could overtake Intel in overall semiconductor output. "It's possible," he said. "But that would need Samsung to expand its (AP) customer base beyond themselves and Apple. Also, Intel would have to completely miss the boat on its mobile ambitions."

Samsung has a headstart as it builds application processors that power the world's most popular smartphones and tablets - the iPhone, iPad and Samsung's own Galaxy products.

Intel has little presence in this dynamic market. In April, India's little-known Lava International launched its Xolo X900 smartphone, the first to use Intel's new Medfield processor. Intel chips will also be used in some smartphones from Lenovo, Google's Motorola Mobility and others. This will give Intel an entrance to the mobile market, but it has yet to rival mainstream mobile chips such as Apple's A5, Qualcomm's Snapdragon and Samsung's Exynos processors.

"How big they get and how fast remains to be determined ... I don't think anyone expects these to be mega hits, but rather proof of concept," said JMP Securities analyst Alex Gauna.

ARM WRESTLING

Intel is also seeing its long-time partner Microsoft tie-up with ARM to take on Apple, as ARM's mobile-friendly chips may be better suited for tablets running Windows 8 - expected to be released by the fourth quarter. Microsoft's alliance with ARM, an Intel rival and the dominant designer of chips for smartphones and tablets, signals a shift in the tech balance of power from the 'Wintel' alliance that set the standard in early computing.

"Samsung is betting that mobile processor market growth will further accelerate when Windows 8 is released, which will use ARM-based application processors, and that's partly behind its aggressive capacity expansion," said NH Investment & Securities analyst Lee Sun-tae.

Longer-term, it suggests application processors can be used in computers, encroaching on the market for central processing units (CPU), where Intel is leader.

"Samsung is expected to gain a toehold in the CPU market to be in direct competition with Intel, as power-efficient ARM-based application processors, which Samsung makes, will square off with Intel chips, which boast high performance but need to improve power efficiency," said Seo Won-seok, an analyst at Korea Investment & Securities.

INTEL PLUS?

Intel had $48.7 billion of chip revenue last year - some $20 billion more than second-ranked Samsung - giving it 9.2 percent market share, according to iSuppli.

"Catching Intel would require significant growth in memory market share along with an Intel stumble," said Mike Howard, an analyst at iSuppli. "While there are challenges for Samsung to continue to grow market share in memory (chips)... I would anticipate a major alliance, long-term, between Intel and another major memory company to rival Samsung."